Scott Munsterman has been praised for innovation in his chiropractic care, but slapped by the Justice Department. / Jay Pickthorn / Argus Leader

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Scott Munsterman redefined the way chiropractic care operated in South Dakota in the mid-1990s, and along the way he became that industry’s most powerful and, in some circles, controversial player.

The state representative and former Brookings mayor is looking to further innovate the industry today, but he’ll have to do it in the wake of a U.S. Department of Justice ruling last month that dealt his organization — and his unquestioned control of chiropractic issues in the state — a major setback last month.

The Justice Department concluded a 20-month investigation into the business practices of Chiropractic Associates of South Dakota and accused it of anti-trust violations. The government said the organization drove up the cost of chiropractic services and limited consumer options.

Under the judgment, Chiropractic Associates did not admit wrongdoing, but it did agree to scrap the portion of its business that generates most of its clout — its ability to negotiate contracts between chiropractors in its network and insurance companies.

Munsterman disputes the government’s conclusions.

“The accusation by the regulators is that (Chiropractic Associates) equates to higher fees for consumers, but that is not true,” he said recently from his office in Brookings.

What is true, however, is that the government’s judgment has thrown a dose of uncertainty into South Dakota’s chiropractic industry. Now, insurance companies might be forced to negotiate contracts with each chiropractor rather than with Munsterman’s organization. That means more work for the insurance companies.

“Without (Chiropractic Associates) being able to do that, we’re going to have to do that ourselves,” said Kirk Zimmer, CEO of DakotaCare.

The Justice Department’s judgment is subject to a 60-day public comment period, which ends in June. Doctors in the network don’t know what to expect.

“We’re not sure what it means,” said Dr. Marcus Jones, a chiropractor in Sioux Falls.

It’s a jarring outcome for an organization that has been operating the same way since it began in 1997.

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And the government’s action comes at a time when Munsterman is focused on his latest business enterprise, Best Practices Academy, which aims to help chiropractors deal with the monumental changes the health care industry is undergoing. Best Practices is trainingchiropractors in the changing world of electronic records and is helping them navigate a health system that is evolving into one that rewards doctors for the quality of patient outcomes, rather than rewarding them for the number of tests they order.

The new venture puts Munsterman on the cutting edge of a changing health care system, much like he was when he launched Chiropractic Associates more than 15 years ago to ensure that chiropractors remained a potent force in health care as that industry was evolving into one dominated by managed care organizations.

Fearing that chiropractors in South Dakota would be frozen out of the system, Munsterman created his own network of doctors to negotiate directly with insurance providers.

Political clout from business empire

This preferred provider organization, Chiropractic Associates of South Dakota, became the dominant force in chiropractic health services. The network negotiated deals with health insurance companies, and for most of the state’s almost 325 active chiropractors, joining the organization became the only way to access some insurance companies.

Put bluntly, Chiropractic Associates became the meal ticket for most of the state’s chiropractors.

Munsterman’s vision in creating the network made him the undisputed king of chiropractic in South Dakota. His organization gets a cut of the services provided by chiropractors in the network, and Munsterman has parlayed his achievements in business to success in politics — first as the mayor of Brookings and then with a surprising second-place finish in the 2010 Republican primary for governor.

As a state representative, he has supported issues that have advanced his industry in a state that has almost no rules regarding conflicts of interest among lawmakers.

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Resentment of industry's 'sentinel'

Privately, some chiropractors chafe at Munsterman’s powerful influence over the industry and their individual practices. As part of the contracts Chiropractic Associates negotiates with insurance companies, it agrees to provide oversight on chiropractors to ensure they are not providing unnecessary treatments or overbilling.

Munsterman calls himself a “sentinel.” He acknowledges that he is unpopular with some chiropractors, but that, he says, is because they don’t like the oversight Chiropractic Associates provides.

“Why don’t they like me or the system?” he said. “They don’t like being watched. That’s what (insurance companies) want — to make sure the care is medically necessary.”

Officials at insurance companies that contract with Chiropractic Associates aren’t happy with the Justice Department’s recent judgment. They agree with Munsterman that his organization did nothing wrong.

“I don’t know that I would have come to the same conclusion” as the Justice Department, said Sanford Health’s Ruth Krystopolski, the executive vice president of development and research. She noted that patient use for chiropractors in Munsterman’s network is less than for chiropractors who aren’t in the network, a testament to Chiropractic Associates’ ability to lower health care costs.

“He was ahead of his time,” she said.

Zimmer of DakotaCare also said that Chiropractic Associates lowered costs.

“I guess we don’t see it that way,” he said of the Justice Department’s opinion. “The process we got from Scott was much like any other provider.”

Strength in numbers as network formed

Munsterman, now 52, saw in the 1990s that health care was evolving into more centralized, managed-care entities. He was a practicing chiropractor at the time and concluded that chiropractors in the state weren’t prepared for the change. So he studied how managed care worked.

He was spurred to form Chiropractic Associates in part by a Minnesota network that was reimbursing chiropractors with lower rates and denying care to patients. He wanted to change that.

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“We’ve got people outside the state making decisions for residents inside the state,” he said of the situation.

Munsterman organized chiropractors to join his network. Dr. Allen Unruh, who has practiced for more than 40 years, remembers that chiropractors joined Munsterman’s organization because the alternative possibly meant going out of business.

“Everybody made a decision out of fear — strength in numbers,” he said.

Chiropractic Associates won the contracts of several health insurance plans. The doctors in the network had access to the patients covered under the plans. In return, the doctors reduced their fees, and Chiropractic Associates received a cut of everything the network doctors billed, money that went to Munsterman and the shareholders.

Munsterman offered another value to the insurance companies: His organization would review the medical records of its network doctors to determine whether a chiropractor was providing more care than necessary. Under the network’s rules, once a patient visits a chiropractor more than 10 times in a year, an automatic utilization review takes place to audit the chiropractor.

“That’s doing our job for the payer and the consumer, because that’s about keeping the rates lower,” Munsterman said.

Some insurance companies, including DakotaCare, would reimburse only chiropractic care provided by Chiropractic Associates network doctors.

Thus, most of the state’s doctors — the Justice Department estimated 80 percent — joined Munsterman’s network to access patients covered under those health plans.

It gave Munsterman enormous leverage over the profession in South Dakota and the region. Chiropractic Associates also represents chiropractors in North Dakota, Minnesota and Iowa.

Many chiropractors welcome the oversight provided by the network because that scrutiny is provided by other chiropractors who understand the science behind chiropractic care.

Critics complain of hardball tactics

But others have complained about the fees that go to the organization and about what they perceive as hardball tactics by Munsterman and his allies to control the profession.

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■ In 2006, Chiropractic Associates’ board voted to require all doctors in the network to join and pay dues to the South Dakota Chiropractors Association, an advocacy organization. A change in state law trumped that decision.

■ Also in 2006, Chiropractic Associates required its network chiropractors to sign an addendum to their provider agreement, requiring providers and their staff to “maintain a good working relationship with the organization and its staff.” Failure to sign would have meant being booted from the network and losing access to the insurance companies that had exclusive contracts with Chiropractic Associates.

■ In 2011, doctors in the organization were informed that they would be charged an additional $60 a month to help fund Munsterman’s newest venture, Best Practices Academy. The fee eventually was scrapped, Munsterman said, because he found grants to help move the project forward without charging monthly subscription fees.

Ultimately, he said, nobody is forced to join Chiropractic Associates or sign the contracts with the insurance companies that use the network.

“The contract is strictly voluntary,” he said.

The doctors are free to join organizations other than Chiropractic Associates, which he estimates has 20 percent to 25 percent of the business with insurers.

“That’s not a monopoly — especially when you have competing networks,” he said.

Such is the level of respect for Munsterman that Dr. Robert McCoy of Sioux Falls drove to Brookings one day. McCoy, then president of Sioux Empire Chiropractic Society, wanted to sit down with Munsterman and explain that he and a group of chiropractors were working to bring Nebraska-based SecureCare, a competing network, to the state. SecureCare had fairer utilization guidelines and had negotiated higher fee schedules with other insurers, McCoy said in a letter to fellow chiropractors.

McCoy wanted to explain the decision in person.

“If I’m going to piss somebody off, I’m going to tell them I’m going to piss them off,” McCoy said. “I don’t want them to find out another way.”

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SecureCare now has a presence in the state.

Advocate in Pierre for chiropractors

Many in the profession see Munsterman as an able advocate for chiropractors in the Legislature.

“Scott, being a state legislator, he’s worked his tail off for us,” said chiropractor Robert McCoy of Sioux Falls.

Even before he joined the Legislature in 2011, Munsterman lobbied for issues important to the industry. And if the profession is somewhat fractured given its independent nature, it bands together when faced with threats at the Capitol.

In 2011, for example, dozens of chiropractors descended on Pierre to persuade lawmakers to override Gov. Dennis Daugaard’s veto of a bill that prohibited insurance companies from charging higher copayments for chiropractors, who were being labeled specialists, than for family doctors. Insurance companies were charging $20 to $25 for copays to medical doctors, and $50 or $60 copays for chiropractic services.

Munsterman said he doesn’t see a problem with his work as a lawmaker on issues that touch his private business dealings. Health care is one of the “core competencies” that he brings to the Legislature, and he said other lawmakers bring expertise in different areas.

“That’s what a citizen Legislature is all about, and we need to celebrate that,” he said.

His voice on such issues in the Legislature will be around for at least one more session. Meanwhile, Chiropractic Associates’ long-term business outlook is uncertain now that the Justice Department has intervened. Without the ability to negotiate contracts for the doctors in the network, the organization doesn’t have the muscle it once did.

For some doctors, that’s fine.

“I’d rather myself not be a member,” Jones said. “A lot of the guys feel that way, too.”

Unruh predicts that more chiropractors will shun insurance altogether, setting up cash-only business models. Health care regulations are getting more complicated and burdensome to handle.

“The third-party system is destroying health care,” Unruh said. “If you can go straight cash, a lot of them are, because the paperwork is horrendous.”

Munsterman doesn’t seem concerned about Chiropractic Associates’ future. The next revolution to hit health care is on the way, and doctors will be paid for the quality of care they give patients, not the number of procedures or tests they order.

And through Best Practices Academy, Munsterman wants chiropractors to be ready for change, just like he was in the 1990s.

“I’m being sincere when I say this: I have a love for every doctor in this state,” he said.